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Economic metrics need 21st-century update

Posted On: Oct. 29, 2015 12:00 AM CST

Economic metrics need 21st-century update

The numbers used to measure U.S. economic performance no longer reflect economic reality, according to a noted economist.

The way data are used to determine gross domestic product or the extent of unemployment dates back to the 1930s, said Zachary Karabell, a New York-based economist and author of “The Leading Indicators: A Short History of the Numbers that Rule our World,” during an address Tuesday at the Property Casualty Insurers Association of America's annual meeting.

For example, there was no concept of unemployment in an agrarian economy such as that of the United States in the 19th century, so no one measured it. If you were unemployed, you were a vagrant, a drunk or dead, he said.

But the growth of the industrialized economy — and the Great Depression — led the government into the data collection business. Changes from that economy to that of the 21st century mean that current statistics reflect numbers that were set up to “measure something that's breaking apart,” he said. A driver for Uber Technologies Inc., for example, may be considered unemployed by the government even though he or she is earning money because of the way government defines employment.

The 20th-century economic model was “lots of people among lots of things for lots of people,” said Mr. Karabell. But that model is becoming “increasingly irrelevant for the winners of the 20th century” like the United States, Europe and Japan as billions of people move into a global middle class.

In today's world, “it's very unclear who makes what where,” which makes determining GDP

more difficult, he said. He cited as an example the iPhone, which is assembled in China but has components made in other countries. The intellectual property that created the device is American. But in trade statistics, the phone shows up as made in China because that was where it underwent its last substantial transformation, he said.